May 26, 2010

Your Will, Health Care Proxy, Durable Power of Attorney, & Homestead Declaration are four estate planning documents you need right now. They assure that your affairs will be handled according to your wishes while incapacitated, establish how your assets will be distributed when you die, and protect your home from lawsuits. Gina M. Barry, Esq. [email protected], 413.781.0560.

This video has been prepared by Bacon Wilson, P.C. for informational purposes only and is not intended and should not be construed as legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. Viewers should not act upon this information without seeking professional counsel. Do not send us information until you speak with one of our lawyers and get authorization to send that information to us.

May 19, 2010

There has been some discussion recently relative to the workings of a Health Proxy (HCP) and a Power of Attorney (POA.) While the HCP agent attends to all medical decisions regarding the principal, who may then become physically or mentally incapacitated, it is the POA who attends to the payment of all bills and collection of income and assets of the incapacitated person. Often times, the principal may determine that the same person should not serve as both the HCP agent and the POA agent. Therefore, the principal may name two different individuals to serve in the respective capacities.It is important that both individuals, if they are not the same person, will work together in the best interest of the principal, as there may be a conflict. For instance, the HCP agent is charged with the determination of the medical care for the principal. This may possibly include 24/7 home care or placing the person in an assisted living facility or long term care unit. While the HCP agent is making this decision, it is up to the agent under the POA to pay for the care that is contracted. Different facilities may elect to have either the POA, the HCP, or possibly both, sign the admission forms and responsibility forms for the principal when the admission is allowed. So long as both parties agree, and there is no conflict, the best interests of the incapacitated person are going to be carried out by the partnership between the decision makers. However, when one of the decision makers does not agree, it becomes a true conflict that must be resolved. The HCP agent may determine that the principal needs long term care and institutionalization. The POA may believe that the person does not need that level of care, but rather can use either assisted living or home care with either a significant amount of caregivers or perhaps 24/7 care. In the event of a disagreement, one of the decision makers will have to petition the Court for authority to take over. In these situations, it could be an expensive, long, drawn out process taking several months before a decision is reached by the Judge. Once the Trial Judge makes a decision, it is likely that one of the parties will appeal the case to the higher court. This is an unfortunate circumstance, as the incapacitated person is now possibly paying for two lawyers, one to represent the person in defending an action, and the other to pursue an action against the incapacitated person. In the alternative, perhaps the parties may seek the guidance of a mediator who is trained in resolving conflict without the need for court action. This is also expensive, time consuming, and public. Therefore, it is important to consider naming the same person to serve in all documents, or whether it is better to have separate decision makers to deliberately involve more people and provide as more oversight for the best interest of the principal. Often, a person merely names the oldest child or their closest living child, who may not be the best person to serve in all capacities. While there is no right or wrong, it is important to consider the maturity, time available, expertise, geographic addition, and all other factors regarding the decision maker on these documents before naming them.

May 12, 2010

After you die, your loved ones must make several important decisions, most of which have specific time frames and limitations. It is important that upon death, the named Executor under your Will, or if there is no Will, the person in charge, consults an attorney and an accountant to proceed with the proper settlement of the estate. One of the first issues to decide is whether the estate has to file an estate tax return. At this time there is no federal estate tax, but the return may be due if congress passes a law and makes it retroactive to January 1, 2010. The federal estate tax return is normally due nine months from date of death. Even if there is no federal return due, it is important to determine whether a state estate tax return is due. States have various requirements that must be complied with. Even if there is no estate tax return due, it is important to determine all of the date of death values of assets owned, as these values may be determined to be the new tax basis for the decedent. Although the rules are also changing regarding the allocation of basis upon death, there is a benefit when one dies and assets have increased from the date of the purchase to the date of death, as the date of death value may be the controlling date for future gains and losses subsequent to the decedent’s death. This could be a significant benefit, since many people believe that the date they purchase property becomes their basis, and they may report a future capital gain based on the prior purchase date, when the date of death value could be the new adjusted basis for purposes of gains and losses. There are also benefits when a decedent owns assets that have built-in income, which is known as income in respect of a decedent. These assets are normally retirement plans, U.S. Savings Bonds, and deferred annuities. All of these assets maintain a build-up of income within the asset that has never been income taxed. When the decedent dies, there is normally a significant income tax due when the beneficiary receives these assets, and the tax will be paid at the rate of the recipient, normally not the decedent.However, there are some special rules that allow some of the income to be reported on the decedent’s final income tax return, and in some cases, a decedent’s estate must take the minimum distribution, if it had not been taken during the year. There are significant adverse consequences that will occur if the fiduciary for the estate does not comply with all of the technical rules, and IRS penalties could equal 50% in some cases. All options should be reviewed before making a decision, and in some cases, not all beneficiaries must elect the same decision in collecting the assets upon death. There are also special elections that a spouse may utilize that are not available to other family members or other beneficiaries. In cases where there is a Trust, there are options available where the estate and Trust may be considered one entity for filing a tax return, so as to minimize the need for separate returns as well as combine all income and deductions. This can be very favorable for income tax purposes since estates and Trusts have significantly lower exemptions and higher tax rates than individuals. As always, when dealing with tax issues, it is critical that good advice is sought initially so that all deadlines are met properly regarding tax issues and that elections are decided in the most favorable light for the beneficiary, to reduce all estate and income taxes.

May 05, 2010

There are several ways to avoid probate. Normally, assets in your name alone are the only assets that pass through probate. Therefore, if assets are held jointly, have a named beneficiary, or otherwise qualify to avoid probate, the assets will pass to the surviving joint owner or beneficiary, and these will not pass through probate. Of course, there are always issues that may cause an asset to be probated even though it may be held jointly with another person. In this type of situation, when you create your Will you may specifically state within the document that although assets are in joint names, they may be jointly held for convenience, but the assets are supposed to pass pursuant to the terms of your will to the beneficiaries designated in their respective percentages. Therefore, the rebuttal of the presumption that joint ownership may be specified by the Testator should be included specifically within your will, but only if the language is clear that the specific asset, or all assets are to pass pursuant to the will and not to the surviving joint owner or beneficiary. In most of these cases, there is significant disagreement within the parties, and court action is needed to resolve the outstanding conflict. There are several ways to easily avoid probate. The first is to have the ownership of the account be specific, that it is jointly held with rights of survivorship to be provided to the survivors as between the co-owners of the account. In this method, you create a true joint ownership, for instance with children. In the event that any one of your children predecease you, then you would get a portion of your assets back, and their assets would not be probated, thus, they will not pass to the surviving child’s spouse and/or children. It must be remembered that when these types of account are created, any one of the joint owners may be able to withdraw all of the funds from the account at any time, and in the event that any one of the joint owners is sued, his or her share of the account may be attachable or reachable by their creditors and possibly their former spouse, if the asset is not otherwise protected.Another way of protecting assets is to name a beneficiary on your life insurance, 401K plan, IRA, etc. Doing so allows you to designate the beneficiaries and the shares of the assets they are receiving.Another option is to create what is known as a TOD or POD account. These stand for “Transfer on Death” and “Payable on Death.” The TOD option is normally used with securities, stocks, bonds, or a brokerage account. Here you have total control over the account during your lifetime, but upon death, the assets pass directly to the beneficiaries in the shares and percentages that you designate. There may also be a significant portion left to charity, friends, or other relatives, and you may change beneficiaries or percentages in the future. The POD, or Payable on Death, is normally used with bank accounts, i.e., savings, checking, money market, CDs, etc. Similar to the TOD account, the POD names beneficiaries and the proportions to allocate funds. It is important to be sure that the terms of your Will and Trust, if any, are coordinated with the beneficiary designations to insure that your intentions are secured. In many cases you may also have your account owned by you and payable to your trust. However, not all financial institutions and states allow this type of transaction. If available though, this is an excellent way to maintain your assets and make sure they pass through your trust, but also do not pass through the probate process.